The ICDR Regulations require lock-in of pre-issue shareholding, including non-promoter holdings, for a specified period post-IPO. However, practical difficulties were faced where such shares were pledged prior to the IPO, as depositories were unable to technically enforce lock-in on pledged securities. This created compliance challenges for issuers despite the regulatory requirement. SEBI has now introduced a mechanism to address this gap and facilitate ease of doing business.

SEBI has introduced a system-driven mechanism for lock-in of pledged shares, particularly for non-promoter shareholding:

• Where lock-in of specified securities cannot be created, depositories shall, upon instructions from the issuer, record such securities as “non-transferable” for the duration of the applicable lock-in period.
• The depository system shall ensure that:
  • Upon invocation of pledge, or
  • Upon release of pledge,

the shares in the account of the beneficiary (pledger or pledgee) shall automatically remain locked-in for the balance lock-in period.

• The mechanism ensures that lock-in requirements continue to apply irrespective of pledge status, thereby enabling effective enforcement through the depository system rather than contractual arrangements.